Investors Scour Property Sector for Stress: Evergrande Update

(Bloomberg) -- Fantasia Holdings Group Co.’s unexpected default and the uncertainty over China Evergrande Group mean investors are scrutinizing the sector to see which developer may next show signs of liquidity stress. 

Yields on Chinese borrowers’ junk-rated dollar bonds are near 17%, the highest in about a decade, and a number of the notes are trading at levels which suggest substantial risk of nonpayment. The sector is the source of 36% of the record 175 billion yuan ($27.1 billion) in local corporate bond defaults so far this year, according to Bloomberg-compiled data. 

Meanwhile, Evergrande has coupon payments on three more dollar notes due Tuesday. The company is one of China’s largest developers and the biggest issuer of high-yield bonds in Asia. 

Here’s a maturity calendar for this month for dollar and yuan notes from developers whose debt offers the weakest year-to-date returns in a Bloomberg index of China high-yield dollar bonds. Excluded are defaulted firms and Evergrande. The information is from data compiled by Bloomberg.

• Agile Group Holdings Ltd. 1.8 billion yuan note, Oct. 11
• Aoyuan Corp. Group Ltd. 1.5 billion yuan bond, Oct. 12 (Said it has deposited funds for payment)
• Xinyuan Real Estate Co. note with $229 million outstanding, Oct. 15
• Fujian Sunshine Group Co. 375 million yuan bond, Oct. 16
• Guangzhou Times Holding Group Co. 1.7 billion yuan note, Oct. 17
• Yango Group Co. bond with 941 million yuan outstanding, Oct. 22
• Modern Land China Co. note with $250 million outstanding, Oct. 25
• Redsun Properties Group Ltd. bond with $97 million outstanding, Oct. 30

Kirkland & Ellis and Moelis (NYSE:MC) & Co. are working on contingency plans with offshore holders of Evergrande’s bonds who fear the struggling property company may sell assets that they’re counting on to back up their claims if the business collapses.

Moelis and Kirkland are advising a group that so far includes six members holding $2.5 billion of Evergrande offshore bonds, a Moelis managing director said on a call with bondholders Friday. 

They’ve been trying to engage with Evergrande and its advisers since Sept. 16, sending letters asking for information about the company’s situation and assurances that management won’t sell offshore assets while a solution is being discussed. So far, there hasn’t been any meaningful response, a Kirkland partner said during the call, which reporters were invited to monitor. 

Key Developments:

• Credit Anxiety Is Coming for Your Stocks: What to Watch in China
• Evergrande’s Audacious Founder Hunts for a Way Out of Crisis
• The Looming Bond Payments for China’s Most Distressed Firms
• Evergrande Creditors Brace for Battle on Offshore Assets
• Holders of Evergrande-Linked Jumbo Fortune Bond Yet to Be Paid
• Yango Group Denies Housing Project Halted, Plans to Repay Debt

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Modern Land Seeks to Extend Bond Maturity (8:15 a.m. HK)

Modern Land (China) Co. Ltd., a Beijing-based property developer, is seeking consent to extend the maturity of its 12.85% senior notes due 2021 by three months, according to statement to Hong Kong stock exchange.

The purposes of the consent solicitation are to extend the maturity of the 12.85% senior notes due 2021 and improve its liquidity and cash flow management and to avoid any potential payment default.

Evergrande’s Reach Goes Way Past Just Building Homes (6:06 a.m. HK)

Evergrande is the biggest financial worry in China right now, and it’s fast becoming a problem outside of the nation’s borders. In a nutshell, the giant real-estate developer is $300 billion in debt and is widely expected to default on bond payments. The group owns 1,300 projects in more than 280 cities. But its reach goes way beyond building homes. Its billionaire owner Hui Ka Yan has his fingers in pies from electric vehicles and media production to mineral water and soccer.

Fantasia’s Default May Suggest Potential Issue Regarding Payment (6 a.m. HK)

The default on principal payments by Fantasia in the October bond maturity may indicate a potential issue to pay, given the company’s record of buybacks since May 2021, according to a report by Bloomberg Intelligence. This goes directly against the Chinese government directive on issuer conduct, risking severe consequences, the report said. 

The act could risk destabilizing the high-yield market further as fundamentals may no longer dictate default risks but may be offset by increasing bond buybacks from more reputable firms. 

Evergrande Managers Return Funds after Early Redemption (Oct. 9, 2:17 a.m. HK)

Six managers from Evergrande who redeemed wealth-management investment products before due dates have returned all funds to designated accounts as of Oct. 8, the company says in a statement.

Evergrande dollar bond interest deadlines:

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